Euro Pound Exchange Rate is Still Stuck in a Downtrend

The euro to pound exchange rate (EUR/GBP) is projected to remain trapped in a downward facing channel which has determined trade through much of 2014.

That said, we are at crucial levels for the EUR/GBP at the present time.

As we move through the mid-week session we see the currency pair sitting at 0.8023. Should the euro to pound exchange rate push much higher it threatens to break out of the long-established trend to the downside - a move that could play havoc with analyst estimates.

Inversely, the pound to euro exchange rate (GBP/EUR) is quoted as being at 1.2467.

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Projections: It's All About the Channel Lower

The below image, courtesy of Blackwell Global suggests to us where the EUR/GBP is most likely to move towards:

Ross Woodfield at BlackWell Global tells us the channel exists for fundamental reasons; namely the stimulus packages that have been released by the ECB as they fight deflation and low growth.

The situation in the UK is a little different; growth has been comfortable at 0.8% q/q and inflation in the positives, albeit falling, as global economic risks continue to grow.

The pound has rallied to the upper end of the downward band recently as the prospect of an interest rate rise becomes less likely until later in 2015 as inflation continues to fall.

The Bank of England released its monthly inflation expectations report and it expects inflationary pressures to continue to diminish.

It also expects growth to fall from 3.2% to 2.9% next year.

Commenting on the forecasts for the euro pound exchange rate, Woodfield says:

"The result is that the EURGBP has found resistance at the top of the bearish channel at the psychological 0.8000 level and it now looks to reject off it. It is possible that we could see another test of the trend line, however, given that the UK is fundamentally in a better position than the EU, and many expect the ECB to release another round of stimulus, a movement back towards the bottom of the channel looks the most likely outcome.

"For a movement lower, look for the levels at 0.7934, 0.7898 and 0.7830 to potentially hold up the price. These levels of support could all act as targets for a movement lower. The price may also look for the middle of the channel to act as dynamic support.

"The bearish channel on the EURGBP daily charts looks to be in control and the price will likely reject off it. The UK being fundamentally stronger than the EU at this point will likely act as a driver along with the strong rejection off the 0.8000 mark."

However, as noted by Jim Langlands at ForexTell there is a chance the euro could continue its move higher vs the pound:

"The momentum indicators seem to be positive of further gains and  a move back above the 200 DMA would trigger further stops which could take the cross on to the 50% pivot of the down move at 0.8090."